FBT exemption for electric vehicles – what you need to know

Tax Insights

A new bill has been introduced to Parliament to remove fringe benefits tax (FBT) on electric cars, in a bid to make them more affordable.

On 27 July 2022, the Treasury Laws Amendment (Electric Car Discount) Bill 2022 (the “Bill”), which seeks to implement a key pillar of the Government’s Electric Car Discount policy (a key election promise), was introduced to Parliament. 

In what represents good news for proponents of electric vehicles, the Bill, if enacted, will exempt the use of ‘zero or low emissions vehicles’ from FBT. The relevant measures will be subject to review after a period of three years.


What is an eligible ‘zero or low emissions vehicle’?

The Bill defines a  ‘zero or low emissions vehicle’ (Eligible Vehicle”) as: A new bill has been introduced to Parliament to remove fringe benefits tax (FBT) on electric cars, in a bid to make them more affordable.

  • A battery electric vehicle;
  • A hydrogen fuel cell electric vehicle; or
  • A plug-in hybrid vehicle.

This broad definition will encompass virtually all electric or plug-in hybrid vehicles on the market although, for the avoidance of doubt, the exemption will apply only to ‘plug-in’ hybrid vehicles, and will not extend to those that are not recharged by an external source of electricity.

Critically, in order for a ‘zero or low emissions vehicle’ to be eligible for the exemption, its value must not exceed the luxury car tax (LCT) threshold for fuel-efficient cars, which is $84,916 for the financial year ending 30 June 2023.


What does this mean practically?

If enacted, the Bill will apply to all Eligible Vehicles first held and used on or after 1 July 2022 (an unfortunate misalignment to the FBT year). Unlike measures such as the Temporary Full Expensing rules, the date on which an order was placed does not appear to be relevant.  

Enactment of the Bill will, practically, result in material tax savings for employers providing employees with the use of Eligible Vehicles as well as employees salary packing Eligible Vehicles.

Indeed, the Second Reading Speech to the Bill cites the example of an employer saving FBT of $9,000 per annum in respect of a vehicle valued at $50,000, or an employee saving $4,700 per annum when salary sacrificing the same vehicle.


What are the Bill’s implications?

The Bill has various implications for employers and employees, and numerous ‘tips’ and ‘tricks’ arise.

Key observations include:

  • Providing use of an Eligible Vehicle will still be included to determine a current employee’s reportable fringe benefits amount (RFBA) for an FBT year. While this alleged ‘compliance burden’ has been met with some dismay, the approach seems equitable, given RFBAs are used to determine various entitlements such as family assistance payments. Furthermore, we wouldn’t expect this additional burden to detract from the uptake of the rules;
  • Simply ‘gifting’ an Eligible Vehicle to an employee will not be exempt from FBT, based on the Bill’s current drafting as this would be a ‘property benefit’ and not a ‘car benefit’; and
  • The exemption is limited to Eligible Vehicles, the value of which falls within the LCT threshold for fuel-efficient cars. This is the all-in (GST-inclusive) cost of the vehicle, including additions and modifications thereto.

The significance of the Bill should not be underestimated, with a forecast benefit to taxpayers of over $200 million through to 30 June 2026.

For more information

For further information on the proposed FBT measures, please contact Rick Kimberley.

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